Australia Central Bank Increases Key Interest Rate to 4 Percent


Tuesday, March 2nd, 2010

Thinking their economy is strong enough to weather an interest rate increase, the central bank of Australia increased interest rates to four percent.

Some concerns over the raising of interest rates at this time include the sovereign-debt risk from European countries specifically, which could come back to bite the Australian economy if they're not careful. Economists think they should hold interest rates next month and see where things are before increasing again.

This is the first interest rate increase from a Group of 20 central bank since the year began.

One problem that is obvious as far as the so-called economic growth goes, is much of it in Australia for the fourth quarter came about not for the private sector but from Prime Minister Kevin Rudd dumping about $20 billion into the economy for school and road projects.

Other countries have had similar situations, so the idea of growth can't come from taxpayer money being thrown into projects, as there is no way that can be sustainable over a period of time.

The challenge is what happens after the money runs out and the "jobs" created have no revenue source to keep them going because they aren't created by the private sector.

So when Australian authorities say this is the largest boom in jobs in the country in three years, it's somewhat meaningless unless there's a source of revenue continuing on after taxpayer money runs out. How could there be if the majority of jobs are infrastructure related?

The latest figures concerning job creation has 194,600 jobs being added to the economy over the last five months. That's the largest growth in three years. Again though, the big question is whether those jobs are measured by the private sector or government-sponsored.

Good news is private sector companies like BHP Billiton Ltd., Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc are all working on projects which should generate growth and jobs in Australia, and that is good news and something that will be sustainable going forward.

Now we'll see how the demand for commodities cooperates with these major projects. If the demand holds for the commodity sector, we should see some legitimate Australian economic growth not created from the government. That would be good news for the country.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: australia interest rates , bhp billiton , chevron , commodities , exxon mobil , royal dutch shell

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